How do you track and report on CLV performance and trends?

1 What is CLV and why is it important?

Customer Lifetime Value (CLV) is the present value of all the future cash flows that a customer will bring to your business. It reflects the total value of a customer, not just their initial purchase or subscription. CLV is important because it helps you identify your most valuable customers, allocate resources and budget more efficiently, optimize marketing and sales strategies, and evaluate the impact of account management activities on customer satisfaction, loyalty, and retention.

2 How to calculate CLV?

There are different methods and formulas to calculate CLV, depending on the type and complexity of your business model, the data you have available, and the assumptions you make. However, a simple and common way to estimate CLV is to use the following formula:

CLV = Average Revenue Per User (ARPU) x Gross Margin x Average Retention Rate / (1 + Discount Rate - Average Retention Rate)

ARPU is the average amount of revenue that a customer generates for your business in a given period, such as a month or a year. You can calculate it by dividing your total revenue by the number of customers in that period.

Gross Margin is the percentage of revenue that you keep after deducting the cost of goods sold (COGS). You can calculate it by dividing your gross profit by your total revenue.

Average Retention Rate is the percentage of customers that stay with your business over a given period, such as a month or a year. You can calculate it by dividing the number of customers at the end of the period by the number of customers at the beginning of the period.

Discount Rate is the interest rate that you use to discount the future cash flows to their present value. It reflects the opportunity cost of investing in your business, or the rate of return that you could earn elsewhere. You can use your weighted average cost of capital (WACC) or your desired rate of return as your discount rate.

3 How to track and report on CLV performance and trends?

Once you have calculated CLV, you need to track and report on how it changes over time and how it compares to your goals and benchmarks. To do this, you can use various tools and techniques, such as dashboards and reports that show your CLV by customer segment, product, channel, cohort, or any other relevant dimension. Additionally, you can measure your progress and success in improving your CLV with key performance indicators (KPIs) like customer acquisition cost (CAC), customer retention rate (CRR), customer churn rate (CCR), and customer loyalty index (CLI). Finally, data visualization and storytelling can help you communicate your CLV insights and recommendations to your stakeholders, such as your managers, team members, and clients.

4 How to use CLV to improve your account management strategy?

CLV is not only a metric, but also a mindset and a strategy that encourages you to focus on building long-term and profitable relationships with your customers. To use CLV to improve your account management strategy, you can segment customers based on their CLV and assign your best account managers to your highest CLV customers. Additionally, you can identify and address the factors that affect your CLV, such as customer satisfaction, loyalty, retention, and referrals. Lastly, you can test and optimize your account management tactics and channels to maximize your CLV. For example, you can experiment with different email campaigns, webinars, newsletters, or social media posts to engage and educate your customers, and measure their impact on your CLV.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?